Operations Strategies

4

Financial Risk Mitigation Plan

John Conner II

ACC 599: Accounting Capstone

Strayer University

Dr. Mohammad Sumadi

1 May 2022

Risk refers to the chances of an event to occur that will either have a negative or positive impact on the project should it occur (Margaret, 1). This paper will create a financial risk mitigation plan for Shopify, an e-commerce venture. The e-commerce companies such as Shopify conduct their business in the online space and handle a lot of data for the retailers and clients. Online transactions, in most cases, face a lot of internal and external risks in which, some of the risks are natural disasters. The anecdotal evidence indicates that the risks associated with e-commerce are mainly hacking, interception of credit card numbers, and viruses. A proactive risk mitigation plan is one of the ways to eradicate the challenges associated with e-commerce (Margaret, 1). Risk mitigation is an integral part of Shopify that involves monitoring sales and determining whether the sales of products are running appropriately.

Project initiation usually is the first phase of identifying the risk. As the organization grows, more risks are identified. When a risk is identified, the probability of its occurrence is first ascertained. Next, the degree of its impact is assessed and scheduled before the cost, scope, and quality is analyzed. Finally, their priority of occurrence is analyzed. Risk documentation is done in two stages; the first stage involves a contingency plan that details what should be carried out before and during a security concern. The second stage involves developing a contingency plan that is implemented before the occurrence of a risk. The impact of the risk can also be minimized through an emergency plan.

The risk register should record the identified risks at the start and end of the business. The entry grade risks about the chances of the risk happening, the severity of the risk impact, subsequent results, and high-level risk mitigation plans should also be documented in the register. It is vital to keep and update the register regularly to ensure effectiveness in risk mitigation. The risk register in the case of Shopify should include the common frauds Shopify and the e-commerce industry face.

Common Frauds for Shopify and the e-commerce Industry

There are several types of fraud a company such as Shopify, among others in the e-commerce industry, can be exposed to. Fraud exposures are associated with a variety of consequences. The exposure types can be the political, social, financial, market, or business risks depending on the type of the company. The major types of fraud include; Double checking, payroll, friendship, and over-ordering. According to the Association of Certified Fraud Examiners for accounting fraud, payroll fraud is the topmost of the types of fraud listed. Payroll fraud occurs in 28% of enterprises worldwide (Garrett, 2). It includes falsifying employees and misclassifying the employees in the organization. An independent accountant or auditor should be used to reconcile the enterprise payroll quarterly to minimize payroll fraud. In addition, the time-keeping system of the company should be reconciled with the payroll account to minimize such fraud cases. Double-checking involves paying a vendor two times for the same products delivered, for instance, paying a company supplying products $900 and again paying the same account to them but using the identity of the supplying company in the system so that it appears as if the vendor is legitimate (Garrett, 2). Monthly reconciliation of bank accounts can be used to minimize double-checking fraud. This would identify the multiple payments recorded in the system in a given month. Over-ordering is a fraud where a vendor is ordered to deliver excess products. When delivered, the excess products are returned by an employee in exchange for the gift card, purchase cheaper products and keep the remaining balance for their interests. To minimize over-ordering fraud in the company, checks, and balances between the accounting and the receiving clerks should be conducted. The accountant should also set up a policy that requires any returns to be credited back to the company’s account (Garrett, 2).

Friendship fraud is expected in the e-commerce industry. It involves hiring a family member or relative to work for someone. It is not ethical to hire employees based on how close you are related. Instead, employers should hire employees based on their work experience, education, accountability, integrity, and recommendations from their past employers (Coderr, 3). These frauds have similar consequences since they all lead to the affected company losing vast sums of money. The money lost through fraudulent activities would instead be used to develop infrastructure, pay employees and other stakeholders, and revenue to the company.

Strategies to Mitigate the Financial Risks

There are various strategies to mitigate financial risks. A fraud risk management system is one of the most effective tools to mitigate financial risks and fraud. The program should comprise; commitment, roles and responsibilities, affirmation process, fraud risk assessment, investigation process, reporting procedures, corrective actions, fraud awareness, continuous monitoring, and quality assurance (ACFE, 4). Fraud prevention involves measures that can be put in place to prevent fraud, such as training, policies, procedures, and communication. In contrast, detection involves recognizing whether the occurrence will occur or not based on techniques and activities in the company.

The development of the fraud detection system is the best tool with the highest cost-benefit factors. Experienced employees and staff training is the first step in this program. This will help foster a mindset that recognizes fraud and logically takes the appropriate mechanisms to prevent the fraud. For instance, in the falsification of vendor fraud, the organization should consider carrying out checks on organizations or companies with similar phone numbers and addresses to verify the details of every vendor to avoid fraud. Having system checks for duplicate invoices and altered or falsified invoices will also help the company detect and prevent fraud. Data analysis can also be incorporated into the fraud detection system to carry out repetitive tests on the specific data set. Data analysis helps carry out system checks in the entire system and can detect fraud before becoming substantial.

Mitigation of financial risks should be the role and responsibility of every employee in a company. The managers should enact an internal control system to detect and prevent any fraudulent activities concerning the financial statements and reporting. Employees have the responsibility to report any usual activity to their manager. The Sarbanes Oxley act requires the auditor to assess the anti-fraud programs for their clients and provide their findings concerning the assessment of the company's internal controls. The external auditors should take the responsibility of examining and reporting the losses made in the company through fraud and other financial risks. The finance director should take responsibility for investigating the fraud allegations and conducting anti-fraud plan updates. Shopify fraud officers should take the responsibility of investigating fraud allegations and implement any updates made in the anti-fraud plan. The integration of ethical codes in the culture of employees helps to promote the integrity of employees and consequently minimizes fraud. The organization should also pay adequate salaries and reward the employees appropriately to motivate the employees. Happy and motivated employees are less likely to commit fraud and have utmost integrity toward the culture of the organizations (ARASTL, 5).

In summary, financial risk and fraud have become a way in which many companies are losing resources, and there is a need to come up with ways to mitigate the financial risks. There are various roles in fighting fraud and minimizing financial risks; however, the managers are responsible for fighting fraud. In addition, conducting internal audits also help to offer a vital defense line against fraud by monitoring fraud (Coderr, 3). Therefore, today's technology can improve the effectiveness and efficiency of anti-fraud programs and risk mitigation, and organizations need to embrace technology to mitigate financial risks.

References

1. Margaret W., Kevin D. (2018). Financial Risk Management for Management Accountants. Management Accounting Guideline. Retrieved from:

https://www.cimaglobal.com/Documents/ImportedDocuments/cid_mag_financial_risk_jan09.pdf

2. Garrett, Matt, (n.d.). 4 Kinds of Fraud That Could Destroy Your Business. Retrieved from https://www.entrepreneur.com/article/227689

3. Coderr, D.G., (2004), Data analysis techniques and tips for detecting and preventing fraud. Retrieved from http://www.corporatecomplianceinsights.com/7-steps-preventing-detecting-fraud/

4. ACFE.com. (n.d.), Planning and Conducting a Fraud Examination., Retrieved from https://www.acfe.com/

uploadedFiles/Shared_Content/Products/Books_and_Manuals/2014%20Sample%20Chapter_Planning%20and%20Conducting%20a%20Fraud%20Examination.pdf

5. ARASTL, (November 2013). How Corporate Culture Can Prevent Fraud. Retrieved from

http://www.arastl.com/corporate-culture-predict-risk-fraud/